Bid to derail Santos takeover heats up

Retail shareholders in coal seam gas play
Eastern Star Gas,
unhappy with an agreed $730 million takeover by
Santos
, have stepped up a bid to derail the deal at a shareholder vote on Friday.

The ESG Shareholder Action Group is circulating a letter to other investors in the company, the biggest CSG reserves holder in NSW, asking them to “seriously consider" voting against both Santos’s scrip offer and its related deal to buy TRUenergy’s 4 per cent stake for cash.

Paul Johnson, a spokesman for the group, said feedback suggested that up to one-third of shareholders by number could vote against the transactions.

“It is quite an uphill battle but there is a lot of passion about this," he said yesterday.

Institutional shareholders are, however, understood to have reacted more positively to the deals, which were struck by Santos in July.

In addition to the conviction that the Santos offer undervalues their shares, the action group is objecting to the lack of a guaranteed cash alternative in the offer as Santos has agreed for TRUenergy’s stake.

The slide in Santos’s shares since the deal was agreed means shareholders in Eastern Star will receive a lower price than the 90¢ per share that power retailer TRUenergy is set to secure.

At Santos’s closing price yesterday of $12.43, the scrip bid valued Eastern Star at about 85.5¢ per share. The offer represented a 51 per cent premium to Eastern Star’s shares just before the deal was announced but was 10¢ less than Santos had paid for a 20 per cent stake two years earlier.

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The Australian Shareholder Association is unlikely to support the action group’s call, said chief executive Vas Kolesnikoff.

He noted that a follow-on deal, whereby TRUenergy will pay $284 million in cash for 20 per cent of Eastern Star’s CSG permits in the Gunnedah Basin, is also based on a fixed cash price and so justifies the cash price for TRUenergy’s shares.

For the takeover to proceed, it must be passed by more than half Eastern Star shareholders who vote, and by at least 75 per cent of the votes cast. It is not conditional on approval of the TRUenergy deal.

The TRUenergy transaction needs to be given the nod by at least 50 per cent of votes cast. Even if it is voted down, Santos would still acquire TRUenergy’s shares in Eastern Start under the scrip-based scheme of arrangement.